International Paper Company (IP - Analyst Report) reported first-quarter 2015 operating earnings (excluding one-time items) of 84 cents, increasing an impressive 40% year over year and beating the Zacks Consensus Estimate of 77 cents. Strong operational execution and successful cost-out actions helped boost the company’s bottom line.
Net income for the quarter came in at $313 million or 74 cents per share, compared with a net loss of $95 million or 21 cents per share in the year-ago quarter.
First quarter net sales came in at $5,517 million versus $5,943 million in the year-ago quarter and lagged the Zacks Consensus Estimate of $5,894 million. The company saw weak revenue growth across all its segments, especially in its printing papers business.
Segment Performance
Industrial Packaging: Sales from this segment were $3,553 million, down 3.8% from $3,693 million in the year-ago period. Operating income came in at $468 million versus $453 million in the year-ago quarter. Weak revenue growth was largely due to seasonally lower box volume and lower export pricing, which offset robust operating performance in North America. Lower input costs for energy and freight helped boost operating income.
Printing Papers: Sales were down 12.7% year over year to $1,228 million in the reported quarter, while operating income was $109 million versus loss of $410 million in the year-ago quarter. Paper and Pulp earnings in North America were hampered due to slightly lower average sales prices and higher operating costs. In addition, Brazil showed considerable weakness.
Consumer Packaging: Sales from this segment was down 6.2% year over year to $778 million in the reported quarter. Operating profit was $46 million versus $17 million in the year-ago quarter.
Balance Sheet
Cash and temporary investments aggregated $1,576 million at quarter end, compared to $1,341 million as at Mar 31, 2014. Cash flow from operating activities in the quarter came in at $638 million, compared with $471 million in the year-ago period. Long-term debt stood at $8,461 million at quarter end, compared with $8,631 million as of Dec 31, 2014.
International Paper recorded equity earnings of $39 million from its Ilim joint venture in the quarter, compared with an equity loss of $136 million in the preceding quarter. Business performance of the venture benefited as improved operating cost structure led to margin expansion.
Xpedx Spin-off
On Jul 1, 2014 the company completed its Xpedx spin-off. In Jan 2014, International Paper announced that its distribution business xpedx will merge with a distribution solution company, Unisource Worldwide, Inc., to form a new publicly traded company Veritiv. International Paper received $400 million in cash and holds 51% stake of the new company, with UWW Holdings owning the remaining stake.
The spin-off is part of International Paper’s restructuring strategy to discard its non-core operations and focus on its core industrial-packaging businesses. The newly formed publicly traded company is expected to create an enhanced platform for profitable growth across packaging, print and facility solutions.
Outlook
International Paper is the world's leading producer of containerboards used to make corrugated brown boxes for shipping goods. It continues to focus on growing free cash flow, increasing return on capital and returning cash to its shareholders.
International Paper currently has a Zacks Rank #3 (Hold). Other stocks in the sector that look promising and are worth a look include Fibria Celulose SA (FBR - Snapshot Report), Veritiv Corporation (VRTV - Snapshot Report) and Berry Plastics Group, Inc. (BERY - Snapshot Report), each carrying a Zacks Rank #2 (Buy).
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